Monday, March 30, 2009

Just A Fresh Coat Of Paint

Just a fresh coat of paint, and this one will be back on the market. Image credit: Abandoned Places

Apparently, all our economy needs is a fresh coat of paint. At least, that's what I'm hearing from our President today:

President Obama announced what amounts to a do-or-die ultimatum for the struggling automobile industry on Monday, laying out strict standards that the carmakers must meet to get more government aid and declaring that the industry must survive because it is “like no other, an emblem of the American spirit.”

A failure of leadership “from Washington to Detroit” over the years has led the industry to the brink of collapse, the president said, and in more recent days both General Motors and Chrysler have failed to come up with plans adequate to justify the billions more in government help that they are requesting.

“And so today, I am announcing that my administration will offer G.M. and Chrysler a limited period of time to work with creditors, unions and other stakeholders to fundamentally restructure in a way that would justify an investment of additional tax dollars; a period during which they must produce plans that would give the American people confidence in their long-term prospects for success,” the president said at the White House.

Obama Issues Ultimatum to Carmakers

These two automotive companies, and their employees, have already been through some painful transitions. The unions have renegotiated wages downward, and have agreed to take on more of the load of financing ex-employee's health care. General Motors, in particular, has been considering restructuring plans that close or sell off entire divisions, and close many plants.

I'd just like to tell President Obama this, should any of his staff show up to read this article: "restructuring" means "fire people". In the case of the automotive industry, that means firing lots of people - thousands of them. I think he knows that, but his use of the euphemism, plus this little gem from the press conference:

“The pain being felt in places that rely on our auto industry is not the fault of our workers, who labor tirelessly and desperately want to see their companies succeed,” [the President] said. “And it is not the fault of all the families and communities that supported manufacturing plants throughout the generations.”

Obama Issues Ultimatum to Carmakers

lead me to suspect that he thinks we citizens don't know what that means. Many of those families he referred to will be living on unemployment and food stamps after these restructurings.

Meanwhile, has there been a similar demand for the banking industry to restructure itself? Has there been any seeming thought to the idea that when banks become too big to fail, that maybe they're too big? None that I can see.

So far, the total aid to the auto industry has been about $17 billion. They are seeking an additional $21.6 billion. The New York Times has provided a nice graphic that shows the financial picture pretty succinctly. How much money have we poured into the financial black hole that used to be our banking industry? Try $10 trillion, and counting. Yet, the Obama Administration actively sought to exempt the people who run this industry from receiving the bonuses they were due for running their industry into the ground. They've made noises about how the good old days of little or no regulation are coming to an end, but so far that's only been talk.

Obama's attitude about the automotive industry strikes me as another example of his impulse to put a fresh coat of paint on our economy when what it really needs is to be re-roofed and strengthened. When you add it to his fetish for "fixing" Social Security, it adds up to a guy who doesn't want to take on the real work, because it's messy and difficult. Paul Krugman, referring to the leaked plan of Treasury Secretary Tim Geithner to fix the financial industry, summed things up pretty well:

This is more than disappointing. In fact, it fills me with a sense of despair.

After all, we’ve just been through the firestorm over the A.I.G. bonuses, during which administration officials claimed that they knew nothing, couldn’t do anything, and anyway it was someone else’s fault. Meanwhile, the administration has failed to quell the public’s doubts about what banks are doing with taxpayer money.

And now Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing.

Financial Policy Despair

I'm not an expert on our economy, by any means. Nevertheless, there is a clear disconnect between the problems and the solutions proffered by the Obama Administration so far.

And I'm feeling that despair, too.

While it's clear that the auto industry could be doing better, it's also clear that they were able to make a profit until recently. Their troubles are partly thanks to the current fad for smaller cars, which should be more than a fad but probably won't be now that gasoline prices are lower. Their salary and benefits structure, particularly at the top, is little short of insane. But, they are also suffering because of the problem in the financial industry. As I've explained before, manufacturing industries can't go for long without financing. That's particularly true when sales are down, as they are now for both foreign and domestic companies.

I know I'm sounding like a broken record, but then so is the Obama Administration. They keep saying the problem with the economy is everything except what it really is, and I keep pointing out the obvious. Hopefully, one of these days I won't have to do that anymore. Until then, though, I suggest you go down to the nearest paint store and decide what color you want the economy to have. I'm thinking brick red, or maybe burnt toast.


toronto realtor said...

IF American car industry wants to survive, it has to cut dozens of bonuses, health care and retirement plans and fire thousands of people. It's the only way how to survive. The sooner people realize this basic fact, the better. Industry needs flexibility and extremely loyal employees, that's what you can find in Japan, Korea or even India, there's the future of car industry, we have to follow this trend, or we will lose the game...
Take care

Cujo359 said...

The auto industry needs to adapt, that is for certain. But one of the advantages those countries' auto companies have over ours is that their governments shoulder the cost of health care. In America, that's left to employers and individuals.

Nothing in the plans the Obama Administration seems to take seriously will fix that.

Loyalty cuts both ways. Japanese companies, in particular, are famous for not laying off employees because times are tough. Here, it's the first option. I think if you're going to use Japanese companies as an example of how to run things, mentioning firing thousands of people would seem to show that you don't have a clear understanding of that. You don't get loyalty on demand. You get it by earning it. When American management learns to appreciate its employees, then it will be more likely to have their appreciation.

shoephone said...

Although I'm no economics expert, I tend toward believing Krugman, not Geithner. Maybe it's the pessimist in me, maybe it's just that I know (as many of us do) the reality of what it means to be in debt on the micro level: No money? No buy things. End of story. And while we tend to get flipped out by the deficits in our state budgets, at least they're tied to reality -- the state governments are required by law to balance their budgets. No money? No buy things. The citizens get it, state and local governments get it. The fed govt. and the kings of the corporate kleptocracy don't get it. Reward the kleptos, starve the union workers, fire and layoff the rest. As for health care reform, it's flying right out the window.

I'd feel a hell of a lot better if, at the very least, our so-called representatives in Congress had done their constitutional duty -- namely, OVERSIGHT -- and required built-in accountability measures in the TARP funding last September when they were setting to unleash those bailouts. The AIG debacle could have been avoided.

I'm not at all happy with Obama's and Geithner's latest hypocrises. AIG bad, banks okay/ auto makers deserving, unions not. He's simplifying it for us, John and Jane Q. Public, so that the populist anger doesn't reach critical mass, but behind the facade of calmness and confidence he exudes, he's terrified of the whole thing crashing down around him (I would be too). The Republicans will always be unrepentant obstructionists, it's their special talent. But the Dems and Obama own this thing now, don't they?

It's times like these I hear Bob Marley's words ringing in my ears:

"'Cause I feel like bombing a church,
Now that I know the preacher is lyin'."

Cujo359 said...

Hi shoephone,

I've never been in favor of requiring balanced budgets at the federal level, partly because there are times like we're having now. Pushing the problem of paying down the road is going to be necessary every once in a while.

I also suspect that at least parts of the government get that. Unfortunately, they answer to the financial industry far more than they answer to us. That's why we're where we are, I think. The banks and insurance companies get to collect our money, and they in turn spend it on buying the politicians they want.

In this particular policy area, there's remarkably little difference between the Republicans and the Obama Administration. It's amazing they're bothering to obstruct anything. If I were they, I think I'd be willing to trade a few setbacks in unionization and "free markets" in exchange for some stability and economic growth. That they don't seem to feel that way is probably the biggest reason that these particular Republicans should never see real power again.

Dana Hunter said...

You know who we should've elected President? Paul Krugman. At least then we'd have someone in charge who gets the economy.

As for the paint job, I think we should do something French. Merde brun. Or perhaps just take the Rolling Stones' advice and paint it black...

Cujo359 said...

Or Chris Dodd, John Edwards, Dennis Kucinich, Ralph Nader ...

But guess what, those weren't the serious candidates. Makes you wonder, doesn't it?